Financial Services Sector Facing More Issues – Citi Loses another Billion and Pricewaterhousecoopers Appear Culpable in Indian Financial Scam

The financial services sector continues to show weakness, poor judgment and downright shady dealings, all of which will continue to have a negative effect on the luxury home markets.

This Thursday, Citigroup announced that they will suffer an estimated $1.4 billion loss after LyondellBasell  placed dozens of its subsidiaries under bankruptcy protection this week after failing to restructure $26billion in debt. Citi had already written off $600 million, but their total exposure is in the region of $2 billion. Many other  banks, including UBS, Royal Bank of Scotland, Goldman Sachs and Bank of America, which recently divested itself of almost $3 billion in the China Construction Bank at a heavy discount, are also believed to be exposed.

PricewaterhouseCoopers meanwhile, are facing allegations of colluding to deceive shareholders after Raju Ramalinga the chairman and founder of one of India’s largest IT companies, Satyam, admitted a $1 billion accounting fraud. Raju claims the fraud originated from an attempt several years ago to cover a marginal gap in the operating profit numbers. The deceit swelled to “unmanageable proportions” and finally unraveled after lenders made margin calls on a loan pledged against his 8% family stake.

Ramalinga also claims his colleagues were unaware of the situation. The chief financial officer has since resigned and the company’s remaining directors say they relied on audited accounts.

The auditor in question, PricewaterhouseCoopers said “the audits were conducted…in accordance with applicable auditing standards and were supported by appropriate audit evidence. It certainly is hard to imagine how this could have gone undetected without the auditors being involved. Poor timing really, as they are also under pressure back in the US for failing to detect issues at Fairfield Greenwich which is believed to have invested $8 billion with the now-notorious Mr. Madoff.

Satyam shares fell another 45% yesterday, and the Indian authorities are taking a hard look at the situation. Some how, I have a feeling it will be discovered that auditors do not need to be held accountable (sic).